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In second Infosys innings, Narayana Murthy has more questions to face

Murthy has been quietly putting together a blueprint for Infosys’s revival, having identified three top priorities
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First Published: Mon, Aug 19 2013. 07 54 AM IST
Narayana Murthy. Photo: Hemant Mishra/Mint
Narayana Murthy. Photo: Hemant Mishra/Mint
Updated: Mon, Aug 19 2013. 02 46 PM IST
Bangalore: It was the biggest turnout at a town hall meeting in nearly a decade at Infosys Ltd.
The auditorium at the Electronic City headquarters of Infosys was overflowing with employees, anxious to find out what the company’s most-famous founder would do in his second innings at India’s second-largest software services company.
In his first week after returning as executive chairman and flanked by co-founders S.D. Shibulal and S. Gopalakrishnan and other top executives, N.R. Narayana Murthy addressed a packed auditorium that seats about 2,000 people, according to at least three people present at the gathering, who requested anonymity.
The auditorium was unusually quiet, as everyone listened to Murthy speaking about the challenges facing Infosys and the task ahead.
“A lot of care and pain was taken to ensure every employee at the company, even those not physically present, was part of the gathering,” said a person who was present at the meeting.
Murthy, who will turn 67 on 20 August, comes to office by 7am most of the days, with his son Rohan by his side.
Murthy has been quietly putting together a blueprint for Infosys’s revival, having identified three top priorities—increasing staff morale through regular interactions, boosting investors’ confidence by sharing the progress and plans and meeting the top 100 clients of Infosys to protect existing contracts and get more business, according to company executives who spoke on condition of anonymity and experts familiar with the discussions.
Murthy is also aggressively pushing to cut costs, especially the ones linked to doing business at the location of the company’s clients outside India. Infosys’s on-site costs have increased from 36% of total costs in 2011 to 46% in March 2013.
Murthy declined a meeting to discuss the present situation at Infosys. “Thanks, but I am not in a position to speak since it is too early,” he said.
Since his return in an executive role after nearly seven years, Murthy has hosted a number of town hall gatherings across the country to interact with employees. In the last such employee gathering, which was held during the first week of August, Murthy decided to come up with a new way of interacting with employees.
“He picked up about 15-20 questions that employees had posted and invited those employees to have lunch,” said one of the executives present at the meeting. “He credited Rohan for coming up with the idea of having lunch with employees.”
Company executives, both present and former, point to the fact that despite stepping down from all executive roles in 2006, Murthy never truly left his office in the “heritage building”, a red brick block at the company’s Electronic City headquarters, and continued to have a big say in all major strategic decisions that were undertaken by Infosys.
“If Murthy never really left Infosys and was still actively involved over the last few years when the company started slipping, the question is, what will he do different now in turning around the fortunes of Infosys?” asked a former Infosys executive, who declined to be named.
On 9 August, Murthy addressed investors after a gap of nearly eight years and provided the first glimpse of his plans for Infosys. Investors such as Barclays Capital Inc. that attended the sessions said Murthy identified three reasons for Infosys lagging behind rivals—lack of focus in winning large outsourcing contracts, higher cost of doing business and low employee confidence because of stagnant salaries.
“Mr. Murthy outlined three ongoing efforts to re-establish the franchise: improving sales efficiency; increasing automation and boosting employee productivity; and cost rationalization,” Barclays analysts Bhuvnesh Singh and Hitesh Das said in a 12 August note after the interaction.
Management and strategy experts said Murthy’s comeback also raises questions, both about his ability to recreate the old magic as well as the way in which he is executing the revival plan, especially with his son around.
“What it says is that the company lost its bearings and needs to get back to speed, so it needs some original leadership,” said Jo-Ellen Pozner, assistant professor at the Haas School of Business, University of California at Berkeley, who specializes in areas of corporate governance, leadership and succession planning. “When you’re bringing back someone who has already said, ‘I’m done,’ there’s only so much more they can do in terms of innovation.”
One of the dangers of having a dominant founder back is that his authority will be difficult to challenge in bringing any fresh thinking, some experts say.
“Being there for so long and having brought the company so far, he has the authority and it’s really hard to have opposing views,” said Christian Stadler, associate professor of strategic management at Warwick Business School. “The other founders can probably still challenge him on certain matters, having worked together for so long, but for the next generation of leaders to do that would be nearly impossible. At stake, is his legacy. If things go terribly wrong, his great record will be tainted.”
On his part, Murthy has engaged top consultants including McKinsey & Co. to help identify the next leaders who can take over soon, another person directly familiar with the move added.
Some experts said Murthy’s urgent priority should be to hunt for an external chief executive and not tap into the existing pool.
“The real question is: why would Murthy be able to make a difference now when he and his colleagues were unable to make the difference from being around on the board and in the company? Murthy is the second-largest shareholder in the company; do you think he really left? The question is why will it make a difference now? Because essentially they still have the same individuals, they have just changed chairs,” said Jean-Francois Manzoni, professor of human resources and organizational development at INSEAD, Singapore.
By focusing on trimming costs and shifting strategy to bid for bigger, riskier outsourcing contracts, Murthy may be attempting to arrest Infosys’s decline in the medium term. But in an environment where global rivals such as International Business Machines Corp. and Accenture Plc. are increasingly betting on disruptive ideas, what Infosys may need is a more long-term transformation.
“You could argue that if Infosys could make a radical shift and move into higher-value services, it would be under a leader like Murthy. But then again Murthy knows more than anybody else that what made Infosys great was the old business model, so to do something new will be very risky. So, you might argue that to make that change would require someone to come in from outside,” said Jaideep Prabhu, professor at the Cambridge Judge Business School, University of Cambridge.
Infosys’s policy of appointing co-founders as chief executives has disrupted succession planning, said Kavil Ramachandran, a professor at the Indian School of Business who specializes in family businesses and wealth management.
“They should have realized that the promoter team could not run things after a certain point and probably gotten more outsiders into the business,” said Ramachandran.
IT industry leaders such as Subroto Bagchi, co-founder and chairman of Mindtree Ltd, said Murthy is capable of doing it again.
“People who are jumping in to provide informed commentary have never been in the boiler room. Let us respect the process of organization building. Yes, the future will be different, the challenges will be unscripted. But you are looking at a leader who was no flash in the pan,” said Bagchi.
Nearly two years ago on the sprawling Electronic City campus, a bespectacled Rohan made a rare public appearance and walked briskly up to a stage to deliver a speech that he had prepared for his father’s farewell from Infosys.
Rohan had quoted a famous line that most Star Trek aficionados will remember from the cult franchise—“Logic clearly dictates that the needs of the many outweigh the needs of the few”—to illustrate how he had come to terms with the fact that the company’s need for his father’s presence was far more important than his own desire.
Once again, Rohan finds himself on the centrestage. This time, however, the stage is vastly different from the time of his farewell speech for his father.
At 5 feet 7 inches, the curly-haired computer science graduate, stands a few inches taller than his illustrious father, but bears more than a passing resemblance to the older Murthy.
“Rohan is there in every important meeting. Just last week, he was in New York with his father to meet the founder of IPSoft, Chetan Dube, for discussing role of autonomics in Infosys’s revival plan,” a person familiar with the meeting said on condition of anonymity.
Rohan Murty’s office said he was not available for comments.
The company needs somebody who can challenge (Narayana) Murthy’s authority and ask questions, an Infosys executive said, requesting anonymity. “With most other founders capable of standing up to him in debates gone, perhaps Rohan can play that role,” he said.
“Rohan, from what I have noticed, is very good as asking the right questions,” said Sharmila Sen, executive editor-at-large at Harvard University Press, who oversees the Murty Classical Library of India and has worked closely with Rohan when he helped set up the library.
“There are people who know exactly what they want to do, set one goal and declare themselves. And then there are people who are more flexible and adapt to changing circumstances with their talents. Rohan belongs to the latter category,” said Sen.
Even some of Murthy’s most ardent supporters and diehard fans feel uncomfortable when asked about whether he should have involved his son.
Others like Bagchi reject the criticism. “Murthy has taught the term corporate governance to all of us. It belittles us (not him) to point a finger because Rohan will be by his side to help him make another demanding, stressful, tiring day easier. He will probably be more being an intellectual aide,” said Bagchi. “If Murthy was to foist his son on Infosys, there are easier ways to do it.”
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First Published: Mon, Aug 19 2013. 07 54 AM IST
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